Weak Q3 Gdp Growth Reinforces Case For Early Interest Rates Cut

Reacting to the publication by the Office for National Statistics (ONS) of preliminary GDP figures for Q3 2005, David Kern, Economic Adviser to the British Chambers of Commerce, said:

"We are disappointed but not surprised by today's GDP figures, since they were anticipated by the very poor results in the BCC's Quarterly Economic Survey (QES) published last week. The weak GDP growth in Q3 confirms that the BCC's GDP growth forecast for 2005 as a whole will be revised down markedly, from 2.4% in our August Quarterly Forecast, to a figure well below 2% in November, probably only 1.6%. This means that 2005 growth will be only half the 3.2% growth recorded in 2004. We believe there is an urgent need to consider an early interest rate cut. "

David Kern added: "The preliminary figures for Q3 2005, published today, show that quarterly growth was only 0.4%, after 0.5% in Q2 and 0.3% in Q1, all disappointingly low figures. Year-on GDP growth was only 1.6% in Q3 2005, after 1.5% in Q2, and well below the economy's long term trend. Manufacturing output grew by 0.4% quarter-on-quarter in Q3. But manufacturing fell in the first two quarters of the year, and the sector still shows a Q3 decline in year-on-year terms. Growth in services and construction, sectors that are usually more dynamic, was also disappointingly low in Q3, well below the figures recorded in 2004."

David Kern concluded: The worsening slowdown in UK economic growth is very worrying. Growth has been below its long-term trend for five quarters in a row. With the economy set to continue growing at a weak pace, there is a distinct danger that the rise in unemployment will worsen. Weaker growth, and the steady increase in the regulatory burden, highlight the growing risks facing UK businesses. Against this disturbing background, confidence is weakening, and the Bank of England's MPC should seriously consider a cut interest rates at its next meeting in November, so as to prevent a further deterioration in the economic situation."